SINGAPORE (Aug 18): CIMB is downgrading its rating on Mermaid Maritime to “reduce” with a target price of 14 cents after the group’s order book narrowed alarmingly to US$99 million ($135.1 million) in 2Q17.
Management initially expected orders to return in 2H but the awards were repeatedly delayed and subsea work won was of little help as they were clinched at relatively low rates and short durations.
In a Thursday report, analyst Cezzane See says, “Forward guidance that the order book could remain at such low levels for the next 6-12 months was unsettling.”
Mermaid also saw a 53.8% drop y-o-y in its 2Q17 net profit of US$3.4 million, missing targets as Selling, General and Administrative stayed at 14.1% of revenue.
Revenue for 2Q17 stood at US$44.5 million and was lower by 10.4% y-o-y on account of the lack of cable lay contracts and lower blended vessel utilisation.
The Seadrill contagion risk remains a dampener as management intends to keep AOD out of any scheme of arrangement or proceeding. This however depends on the outcome of refinancing negotiations at the Seadrill level, which have been extended till Sept 12, 2017.
“Investments in associates were c.US$86.7m as at end-2Q17, c.25% of Mermaid’s equity, but we believe focus is on the potential negative spillover effect on Mermaid‘s profitability as AOD accounts for a large portion of Mermaid’s bottomline. The three drilling rigs in AOD ran on 100% utilisation for 2Q17,” says See.
Due to the groups no cable lay contracts and lower utilisation of Mermaid’s owned vessels on the back of the recent weak order book, See cuts the FY17-19F EPS by 19.9-41.1%.
“Management highlighted it returned one of its chartered-in vessels and was reviewing options to cold-stack an older owned vessel. This could stem margin erosion, in our view,” notes See.
As at 12.22pm, shares in Mermaid are trading at 14 cents.
